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Agency Law

large body of common law that governs agency; a mixture of contract law and tort law


fiduciary relationship "which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act;" the principal-agent relationship


party who employs another person to act on his or her behalf


party who agrees to act on behalf of another. Example: Ask someone to turn in your homework, you have now given that person authority and he/she is now the agent

Principal-Agent Relationship

formed when an employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf

Employer-Employee Relationship

results when an employer hires an employee to perform some task or service but the employee has not been authorized to enter into contracts on behalf of his employer

Express Agency

occurs when a principal and an agent expressly agree to enter into an agency agreement with each other; most common form of agency. Example: Power of Attorney

Exclusive Agency Contract

is where a principal and agent enter into a contract that says the principal cannot employ any agent other than the exclusive agent

Implied Agency

occurs when a principal and an agent do not expressly create an agency, but it is inferred from the conduct of the parties; the agents authority is determines from the facts and circumstances of the situation

Incidental Authority

occurs when the agent has emergency powers to take all reasonable actions to protect the principal's property and rights

Agency by Ratification

occurs when a person misrepresents him/her-self as another's agent when in fact he or she is not and the purported principal ratifies the unauthorized act

Apparent Agency

arises when a principle creates the appearance of an agency that in actuality does not exist; principal is responsible if a reasonable would think it was acting as an agent (reasonable presumption). Two Requirements: 1. Reasonable person 2. Scope of authority—amount of authority you give to an agent

Duty of Loyalty

the agent not to act unfavorably/negative to the interests of the principal

Intentional Misrepresentation

fraud in which an agent makes an untrue statement that he or she knows is not true

Partially Disclosed Agency

an agency in which a contracting third party knows that the agent is acting for a principal but does not know the identity of the principal

Independent Contractor

person who contracts with another to do something for him who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking; person or business that is not an employee but is employed by a principal to perform a certain task on behalf of the principal

Worker's Compensation

paid to workers and their families when workers are injured in connection with their jobs

Occupational Safety and Health Act

federal act that promotes safety in the workplace by imposing record-keeping and reporting of requirements on employers and requires them to post notices in the workplace, informing employees of their rights under the act

Occupational Safety and Health Administration (OSHA)

federal administrative agency within the Department of Labor that is empowered to enforce the act; inspect companies and prevent accidents

Fair Labor Standards Act (FLSA)

federal act to protect workers; prohibits child labor and spells out minimum wage and overtime requirements

Child Labor

1. Children under 14 cannot work (only newspaper delivery) 2. Children 14-15 may work limited hours in nonhazardous jobs 3. Children 16-17 may work unlimited house in nonhazardous jobs. Children who work in agricultural and child actors/performers are exempt from these restrictions

Minimum Wage

requires most employees in the U.S. be paid at least the federal minimum wage for all hours worked; special minimum wage rule for tipped employees

Overtime Pay

an employer cannot require employees to work more than 40 hours per week unless they are paid overtime pay of one-and-a-half times their regular pay for each extra hour worked

Federal Unemployment Tax Act (FUTA)

federal act that requires employers to pay unemployment taxes; unemployment compensation is paid to workers who are temporality unemployed

Social Security

federal system administered by the Social Security Administration that provides limited retirement and death benefits to covered employees and their dependents. Benefits includes: 1. Retirement benefits 2. Survivors' benefits to family members of deceased workers 3. Disability benefits 4. Medicare

Federal Insurance Contributions Act (FICA)

an act in which employees must make pay taxes into the Social Security fund

National Labor Relations Board (NRLB)

federal administrative agency that oversees union elections, prevents employers and unions from engaging in illegal and unfair labor practices, and enforces and interprets certain federal labor laws

Collective Bargaining

act of negotiating contract terms between an employer and the members of a union

Collective Bargaining Agreement

the contract that results from a collective bargaining procedure

Union Shop

workplace where an employee must join the union within a certain number of days after being hired

Agency Shop

workplace where an employee does not have to join the union but must pay a fee equal to union dues

Equal Opportunity in Employment

the right of all employees and job applicants to be treated without discrimination and to be able to sue employers if they are discriminated against

Equal Employment Opportunity Commission

federal administrative agency that is responsible for enforcing most federal antidiscrimination laws

Title VII of the Civil Rights Act of 1964

title of a federal statute enacted to eliminate job discrimination based on five protected classes: race, color, religion, sex, and national origin

Disparate-Treatment Discrimination

occurs when an employer treats a specific individual less favorable than others because of that person's race, color, national origin, sex, or religion

Disparate-Impact Discrimination

occurs when an employer discriminates against an entire protected class. Example: A racially neutral employment practice or rule causes an adverse (unfavorable/bad) impact on a protected class

Same-Sex Discrimination

violates Title VII; many state and local antidiscrimination laws outlaw same-sex discrimination and harassment in the workplace

Bona Fide Occupational Qualification (BFOQ)

a true job qualification; employment discrimination based on a protected class (other than race or color) is lawful if it is job related and a business necessity; may sometimes be able to discriminate based on the job

Equal Pay Act

federal statute that protects both sexes from pay discrimination based on sex; extends to jobs that require equal skill, equal effort, equal responsibility, and similar working conditions

Age Discrimination in Employment Act (ADEA)

a federal statute that prohibits age discrimination practices against employees who are 40 and older

Affirmative Action

a policy that provides that certain job preferences will be given to minority or other protected-class applicants when an employer makes an employment decision

Reverse Discrimination

discrimination against a group that is usually thought of as a majority

Hostile Workplace

discrimination against genders

Quid Pro Quo

means this for that. Example: If you sleep with me you get a raise

Board of Directors

a panel of decision makers who are elected by the shareholders; formulate/set policy decisions that affect the management, supervision, control, and operation of the corporation; authority to appoint the officers of the corporation

Inside Director

a member of the board of directors who is also an officer of the corporation. Example: The president of the corporation often sits as a director of the corporation

Outside Director

a member of the board of directors who is not an officer of the corporation


employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation

Annual Shareholders' Meeting

held by the shareholders of a corporation that must be held by the corporation to elect directors and to vote on other matters

Special Shareholders' Meeting

a meeting called by the shareholders to consider and vote on important or emergency issues, such as a proposed merger or amending the articles of incorporation


a written document that a shareholder signs, authorizing another person to vote his or her shares at the shareholders' meetings in the event of the shareholder's absence

Record Date

specified in corporate bylaws that determine whether a shareholder may vote at a shareholders' meeting; date corporation sets prior to receiving dividend payment


the required number of directors necessary to hold a board meeting or transact business of the board

Audit Committee

a committee of the board of directors responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results

Straight Voting

a system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open

Cumulative Voting

a system in which a shareholder can accumulate all of his or her votes and vote them all for one candidate or split them among several candidates

Annual Report

a report provided to shareholders that contain a balance sheet, an income statement, and a statement of changes in shareholder equity


a distribution of profits of the corporation to shareholders—directors are responsible for determining when, where, how, and how much will be paid in dividends

Stock Dividend

the additional shares of stock distributed as a dividend

Piercing the Corporate Veil

a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations

Fiduciary Duties

the duties of obedience, care, and loyalty owed by directors and officers to their corporation and its shareholders

Duty of Obedience

to act within the authority conferred upon them by state corporation codes, the articles of incorporation, the corporate bylaws, and the resolutions adopted by the board of directors

Duty of Care

to use care and diligence when acting in behalf of the corporation; must fulfill 1. in good faith 2. with the care that an ordinary prudent person in a like position would use under similar circumstance 3. in a manner they reasonably to be in the best interest of the corporation

Business Judgment Rule

directors and officers are not liable to the corporation or its shareholders for honest mistakes of judgment

Duty of Loyalty

to have not to act adversely (harmfully) to the interests of the corporation and to subordinate (put second/lower) their personal interests to those of the corporation and its shareholders

Usurping a Corporate Opportunity

1. Opportunity presented to director/officer in corporate capacity 2. Opportunity is related to or connected with the corporation's current or proposed business 3. Corporation has the financial ability to take advantage of the opportunity 4. Corporate director/officer took the corporate opportunity for him-or herself


occurs when directors/officers take advantage of position in a transaction and act for his/her own person interests rather than for the interests of the corporation

Competing with the Corporation

directors and officers cannot engage in activities unless full disclosure is made and a majority of the disinterested directors or shareholders approve the activity

Secret Profit

when a director or officer breaches his or her duty of loyalty and makes a secret profit on a transaction—the corporation can sue the director or officer to recover the secret profit

Sarbanes-Oxley Act

establishes far-reaching rules regarding corporate governance; goals are to improve corporate governance rules, eliminate conflicts of interests, and instill confidence in investors and the public that management will run public companies in the best interests of all constituents (citizens/components)


an interest or instrument that is common stock, preferred stock, a bond, a debenture, or a warrant aka Common Securities

Securities Act of 1933

federal statute that primarily regulates the issue of securities by companies and other businesses and prohibits fraud during the sale of issued securities; purpose is to require full and honest disclosure of information to investors at the time of the issuance of the securities

Securities Exchange Act of 1934

federal statute to prevent fraud in the subsequent trading of securities; prohibits insider trading and other frauds in the purchase and sale of securities in the after markets; requires continuous reporting to investors and the Securities Exchange Commission (SEC)

Securities and Exchange Commission (SEC)

federal administrative agency that is empowered to administer federal securities laws; authority to adopt rules and regulations to interpret and implement federal securities laws


document that an issuer of securities files with the SEC that contains required information about the issuer, the securities to be issue, and other relevant information


written disclosure document that must be submitted to the SEC along with the registration statement and given to prospective purchasers of the securities; provided to prospective investors to enable them to evaluate the financial risk of an investment

Prefiling Period

black-out period; a period of time that begins when the issuer first contemplates issuing securities and ends when the registration statement is filed—the issuer may not condition the market during this period; No insider can speak with outsider during this time

Securities Exchange Act of 1934

federal statute that primarily regulates the trading in securities

Section 10(b) of SEA of 1934

prohibits the use of manipulative and deceptive devises in contravention of the rules and regulations prescribed by the SEC

Rule 10b-5

adopted by the SEC to clarify the reach of Section 10(b) against deceptive and fraudulent activities in the purchase and sale of securities


required for there to be a violation of Section 10(b) and Rule 10b-5; intentional conduct

Insider Trading Sanctions Act

federal statute that permits the SEC to obtain a civil penalty of up to three times the illegal benefits received from insider trading

Insider Trading

occurs when a company employee or company advisor uses nonpublic information to make a profit by trading in the securities of the company. The duty of an insider who possesses material nonpublic information is to either 1. Don't tell anyone and 2. Don't trade on info—Example: Sell bonds or stock


defined as officers, directors, and employees at all levels of a company; lawyers, accountants, consultants, and agents and representatives who are hired by the company on a temporary and non-employee basis to provide services or work to the company; and other who owe a fiduciary duty to the company


a person who disclosed material nonpublic information to another person


a person who receives material nonpublic information from a tipper

Section 16(b) of SEA of 1934

requires that any profits made by a statutory insider on transactions involving short-swing profits belong to the corporation; any person who is an executive officer, director, or 10% shareholder of a reporting company as a statutory insider

Short-Swing Profits

trades involving equity securities occurring within six months of each other

State Securities Laws

"blue-sky" laws; help prevent investors from purchasing a piece of the blue sky

Certified Public Accountant (CPA)

an accountant who has met certain educational requirements, has passed the CPA examination, and has had a certain number of years of auditing experience

Generally Accepted Accounting Principles (GAAPs)

standards for the preparation and presentation of financial statements—company/corporation

Generally Accepted Auditing Standards (GAASs)

standards for the methods and procedures that must be used to conduct audits—CPA uses to audit company


a certification of a company's books and records pursuant to federal securities laws, states laws, and stock exchange rules that must be performed by an independent CPA

Auditor's Opinion

an opinion of an auditor about how fairly the financial statements of the client company represent the company's financial position, results of operations, and change in cash flows


formal entrance into a contract between a client and an accountant.

Breach of Contract

fails to perform and may be sued for damages

Actual Fraud

the intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage

Constructive Fraud

occurs when an accountant acts with "reckless disregard" for the truth or the consequences of his or her actions


accountant breaches the duty of reasonable care, knowledge, skill, and judgment that he or she owes to a client when providing auditing and other accounting services to the client

Ultramares Doctrine

a rule that says an accountant is liable only for negligence to third parties who are in privity of contract or in a privity-like relationship with the accountant; provides a narrow standard for holding accountants liable to thirds parties for negligence

Privity of Contract

the state of two specified parties being in a contract

Section 11(a) of SEA of 1933

imposes civil liability on accountants and others for making misstatements or omissions of material facts in a registration statement or failing to find such misstatements or omissions

Accountant-Client Privilege

state statue that provides that an accountant cannot be called as a witness against a client in a court action; accountant cannot be called as a witness against a client in a court action—but no accountant-client privilege under federal law and the U.S. Supreme Court

Principal Duties

compensation, reimburse, train/supervise, indemnify, cooperate

Agent Duties

perform duties in contract/meet standard of reason, notify, maintain accurate accounting of all transactions, loyalty

Mutual Agreement

parties mutually agree to terminate their agreement

Lapse of Time

agency terminates when specified time period elapses

Purpose Achieved

principal employ agent for the time it takes to accomplish a certain task/purpose, the agency terminates when they are completed

Occurrence of a Special Event

agency exists until a specified event occurs, then terminates when event happens

Frolic and Detour

a situation in which an agent does something during the course of his or her employment to further his or her own interests rather than the principals

Coming and Going Rule

a principal is generally not liable for injuries cause by its agents and employees while they are on their way to or from work

Fully Disclosed Agency

an agency in which a contracting third party knows that the agent is acting for the principle and the identity of the principal; contract between the principal and third party

Undisclosed Agency

an agency in which a contracting third party does not know of either the existence of the agency or the principal's identity; principal and agent are liable on the contract with the third party


a cessation of work by union members in order to obtain economic benefits or correct an unfair labor practices; employee-initiated


an act of an employer to prevent employees from entering the work premises when the employer reasonable anticipates a strike; employer/owner won't let employees work

Worker Adjustment and Retraining Notification Act (WARN)

a federal act that requires employers with 100 or more employees to give their employees 60 days' notice before engaging certain plant closings or layoffs


anyone who assumes responsibilities for the success or failure of a company


the company will pay legal fees if sued. Example: If I own part of the business, I am responsible.

Winding Up

the process of liquidating a partnership's assets and distributing the proceeds to satisfy claims against the partnership

Domestic Company

does business in the same state of its headquarters

Foreign Company

when the headquarters is in one state and operations are in another


when the headquarters is in a foreign country and work is in the United States. Example: Headquarters is in France, but Joe does business in PA


tell you the number of shares, how many officers, etc.

Private Company

does not tell anyone their finances

Public Company

decided to sell stock publicly

Authorized Shared

the number of shares provided for in the articles of incorporation; bylaws allow

Issued Shares

shares that have been sold by a corporation

Ultra Vires

when a board of directors does something against the bylaws


is the permission to use some else's business plan

Franchise Fee

money to pay for the franchise

Franchise Agreement

a settlement for the franchise

FTC Clause

tells the franchise you owe money the moment you sign for it


permission to use someone else's property

Joint Venture

two competitors who can talk without doing wrong

Intrastate Offering

permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC

Private Placement

permits issuers to raise capital from an unlimited number of accredited investors and no more than 35 non-accredited investors without having to register the offering with the SEC

Small Offering

permits the sale of securities not exceeding $1 million during a 12-month period

Unemployment Compensation

1. At Will: can be fired at any time unless CBA, Individual employment contract, and Law (usually a discrimination—no UEC); 2. For Cause: employees fault - did something wrong; cannot collect


health policy that begins when one retires, usually ages 62-65; percentage of money is taken out of every pay check for Medicare


contract whereby one party undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event - means of transferring and distributing risk of loss


person or property being covered; party who pays a premium to a particular insurance company for insurance coverage among all the parties


insurance company; person providing coverage


insurance contact


money paid to the insurance company

Insurable Interest

requirement that a person who purchases insurance have a personal interest in the insured item or person


person who receives proceeds when the insured dies


pays premium and names beneficiary


person who dies without a will


person who wrote a will and can give you things to whomever

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